Lots of people worldwide still believe that Portugal, Italy, Ireland, Greece and Spain (the so called PIGGS) have a debt problem. However this is only one side of the coin. On the other side, it is the problem of the European integration. The architecture of the EU was built by taking one step at a time, and the monetary union shouldn’t be the last one.
Some experts expressed their doubts before the monetary union of EU. Their doubts was that there was a large gap of productivity between countries and whether this could stand the test of time. Let’s see the problem in a simpler way. We have two countries with the same currency, of which the first is very productive and the other country mainly produces. The result will be a redistribution of wealth in favor of the country that produces. This is exactly the problem of competitiveness of the Member Countries that everyone is talking about in Europe. To resolve this problem, richer countries support pooper countries with financial packages. But these financial packages only make things worst, because poor countries have difficulties repaying the loans.
So the term competitiveness is the challenge between the Eurozone countries and it is surely the compass of the economy. They said to European people that in the name of competitiveness they should be cutting government spending for social matters and more and more money should be directed towards the productive private sector by reducing tax revenues. In essence, the member countries of a monetary union should engage in a race to reduce taxes, which destroys the social benefits of the countries. Perhaps it is not a coincidence that besides Britain, Sweden, which is the largest and most efficient welfare country in Europe, chosen to remain outside the eurozone.
Thus, a union under such conditions, is not sustainable. Authors and political philosophers say that Europe should be a central planning economy that takes into account imbalances in a model that goes to the model of the Federation states such as the U.S. So we are now starting to talk about the necessity of adopting a European governance where the parliaments of member states will have a more administrative nature, while the decisions will be taken at European level, possibly by strengthening the role of the European Parliament. This should be planned carefully and a decision-making center for the economy should be formed at a European level and of course a European budget should be made from which resources are reallocated from rich to poor countries.
However this model is just not feasible. Countries are not ready to loose an important part of their national sovereignty. Countries are not ready to direct a portion of their tax revenues (not as a form of a loan) to the poor region of the EU. People are not going to accept this sort of European governance unless it convinces they that they will get some benefits.
Currently countries that are producers (like Germany) gain from the consuming countries of the Eurozone (like Greece). If each country had their national currency, certainly Germany would have to reduce exports and Greece could increase imports. So these problem will continue to exists, as long as the producer countries earn more than what can be lost by the failure of the consumer countries.
The monetary union of Europe shows it is a paper tower that is collapsing. Will the European leaders manage to find a way to rescue this tower? Only time will show.
Chrys is a freelancer that is mainly involved into Cyprus SEO these days.
